The following model allow

The following model allow

The following model allows the return to education to depend upon the total amount ofboth parents? education, called pareduc:log (wage) = B(i)   Show that, in decimal form, the return to another year of education in this model is?log(wage)/?educ = B1 + B2 * pareduc.What sign do you expect for b2 ? Why?(ii) Using the data in WAGE2.RAW, the estimated equation islog(wage   ) = 5.65 + .047 * educ + .00078 educ*pareduc +(.13) (.010) (.00021).019 exper + .010 tenure(.004)   (.003)n = 722, R^2 =.169.(Only 722 observations contain full information on parents? education.) Interpretthe coefficient on the interaction term. It might help to choose two specific valuesfor pareduc?for example, pareduc 5 32 if both parents have a college education,or pareduc 5 24 if both parents have a high school education?and to compare theestimated return to educ.(iii) When pareduc is added as a separate variable to the equation, we get:log(wage) = 4.94 + .097 * educ + .033 * pareduc – .0016 educ*pareduc(.38)   (.027)             (.017)                  (.0012)+ .020 * exper + .010 * tenure(.004)                (.003)n = 722, R^2  = .174.Does the estimated return to education now depend positively on parent education? Testthe null hypothesis that the return to education does not depend on parent education.

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